HardAssetsInvestor

Written by Sumit Roy  |

October 30, 2012

Support Of Gold At $1700 And Silver At $31.75 Holding Ahead Of 2 Key Catalysts

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We offer our latest analysis on the precious metals market.

Gold and silver showed little movement over the past week, as the metals consolidated just above their respective $1700 and $31.75 support levels. While trading action has been muted in recent sessions, there are two catalysts in the next week that could spur prices sharply in either direction.

The first is the U.S. nonfarm payrolls report, scheduled for release on Friday. Financial markets in general have been correcting in recent weeks amid concerns about the health of the U.S. and global economies.

That’s why this week’s employment data carry particular importance. Supportive figures could arrest the decline in risk assets—gold included—while bearish figures may push markets into a deeper correction. Currently, gold and silver are positively correlated with investor risk appetite. Thus, strong data are seen as bullish.

Expectations are that employers added 125K jobs in the month of October, up slightly from the prior months’ 114K. The unemployment rate is anticipated to tick up from 7.8 to 7.9 percent.

The second catalyst may come next Tuesday—Nov. 6—when Americans cast their ballots for the next president of the United States. Congressional elections will also be held, with polls suggesting that Democrats will retain control of the Senate, while Republicans will retain control of the House of Representatives.

Thus, no matter who wins the presidency, the congressional split ensures that politicians will have to come up with a bipartisan solution to the fiscal cliff at the end of the year. Otherwise, automatic tax hikes and spending cuts will likely push the U.S. economy into a recession. Such an outcome will be extremely bearish for risk assets, and in the short term, may push gold and silver sharply lower.

That being said, the likelihood is that politicians will reach some type of consensus, just as they did last year when they raised the debt ceiling. The elections on Nov. 6 will bring some clarity to the political landscape, and will be a step closer toward reaching a compromise to avert the fiscal cliff. Prices for gold, in our view, could rally as a result.

Looking at the technical landscape, gold is hovering just above the $1700 support level. A breakdown would expose the next layer of support near $1650. Resistance lies at the triple-top near $1800.

Silver is likewise hovering above its support at $31.75. A breakdown would expose $30, while resistance lies at $35.50.

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